The market may have bottomed out for now, but the international turf still remains tough, Ananth Narayan, Co-Head of Wholesale Bank, South Asia, Standard Chartered Bank said. Surge in global crude prices triggered by Syrian crisis battered the already weak Indian rupee, which saw its fastest every one day fall on Wednesday. Indian indices also took a beating on the back of nervous and pessimistic market sentiment.

But even in this hazy situation, one cannot ignore green shoots like a likely fall in August trade deficit data and opening of oil window by the Reserve Bank of India to stem rupee’s fall, he told CNBC-TV18.

“August trade deficit could be below USD 10 billion and the CAD could be close to zero for this month. After RBI’s steps, demand for US dollars is likely to be on its way down.These are medium term positives." He is hopeful that we are heading to a situation where the worst is likely to be behind us.

The battered Indian currency is still in an overshot territory and its steep deprecation will hit investments into India.

Below is the edited transcript of Ananth Narayan’s interview with CNBC-TV18

Q: Where do you think the rupee might settle down in the first place?

A: It is yo-yoing quite a bit. In times like this it is best to be calm and reflect on things a little dispassionately. There are positives and negatives. The positive is the current account deficit (CAD) is definitely improving, the trade deficit has already reduced in June and July, we recon August trade deficit could be below USD 10 billion and the CAD could be close to zero for this month.

The other positive is the announcement which came out from the Reserve Bank of India (RBI) last evening which effectively takes care of the oil demand from the three public sector oil marketing companies (OMCs) for the foreseeable future. Now that is a substantial USD 300-350 million of daily demand which goes out of the system. So both these put together clearly are short-term positives and even medium term positives.

On the negative side, the reality is very few of us expected a run-up to close to 69/USD and the markets are shaken. And the old remit that at some stages the movements in market can determine fundamentals rather than fundamentals determining markets. So there was a lot of scare in the markets and in the wake of volatility of the past few days.

Chances are that you will still see some people wanting to buy every time dollar-rupee recovers because they have seen prospects of 69/USD and are now scared. So you will probably see demand coming in from investors, from importers who haven't hedged all of that on the way down. So there will be a kind of a balance. I think closer to a situation where we can say that the worst is behind us and hopefully better sense will prevail. To make life more interesting you also have an interesting international landscape between Syria and oil prices. So it promises to be interesting.

Q: What the next set of measures could look like because it seems like the measures that the RBI has come out with so far or even the government has come out with will help manage only the near term volatility and perhaps more is required for a sustainable solution. What do you think the next set of measures could look like?

A: A lot of positives are already coming through. Trade deficit genuinely seems to be coming under control; hopefully it is for the medium term and not just a seasonal kind of impact. This current step of taking away oil demand from the market and that clearly looks like what it is right now is a huge positive in terms of the actual flows in the short run.

The problems for India is that we were centered around two issues. One was the CAD which seems to be coming under control; the other is the whole story around growth. The fact that our infrastructure projects are stuck, our growth story has been questioned by global investors, people still don't have comfort that given elections are coming around the corner etc, that we will get out of the current situation in the investment cycle and that remains a huge concern.

If we can get that part clarified, if we can get those stuck projects clarified, if we can give some relief to banks and stuck infrastructure projects, then that can be a huge sentiment booster in people who still believe in dollar rupee in the long run or in India in the long run. We still get lots of calls from investors saying that in 2002 if you invested in rupee bonds at 10 percent, even if dollar-rupee went to 70/USD today you would still have a net 6.5 percent positive dollar return out of India.

So reality is despite all this depreciation India still offers a huge amount of returns. Having said that, we have to give back that story of growth, we have to give back that story that we are people worth investing in and that things will happen here and will turn out for better. So some stability in the fx markets followed by some indications that the growth story isn’t dead, may be it was temporarily delayed for a few months, but shall eventually recover, can really give a lot of fillip to the country as a whole.

We as market participants clamor for steps almost every second, we watch the screen everyday and we say if nothing happens by this weekend we will go down the togs. How many times have we seen in Europe the last year people saying this is the last weekend? If nothing happens this weekend disaster is going to strike. No disaster struck. So I don’t think we need to be as panicky as sometimes we looking at screens tend to be. At the same time, I seriously believe that if we can get that growth story and infrastructure project story running again, a lot of calming of nerves can happen and we can settle down to the right levels for rupee. Clearly it is at overshot zone right now.

Q: Would you say that we still need some more dramatic steps like a Rs 5-7 rise in diesel prices, something which will seminally reassure that we mean business even on the fiscal deficit front, not just CAD?

A: Absolutely these are ugly numbers and these are ugly bouts of volatility. Dollar has strengthened by 50 percent against the rupee in two years, over 20 percent since May of this year. These are horrible numbers and unfortunately they will have a lasting impact on anybody looking to invest in India. Anybody who runs a risk model in India will suddenly see these huge spikes on currencies and rates which don't do us any good and the premium charged will be a lot higher.

Yes we need to show that we mean business, we need to show that infrastructure growth is back on track, we need to show that there is light at the end of the tunnel on growth. There are concerns on the fiscal deficit which needs to be addressed. Clearly the oil deficit needs to be addressed; we need to see those hikes and fiscal prudence coming back again. All those steps will help. I also think that we need to show some conviction that all of us collectively believe rupee has overshot its median level which if it means having to spend a little more reserves that would be welcome at this current stage. I think we have gone to that overshot territory showing that conviction that we all believe that is true would help.

There will be demand for dollars on the way down given that the markets have seen near death kind of experience, you will see investors wanting to buy dollars on dips, you will see importers who haven't hedged looking to buy dollars on dips which is fine but I think despite all that you can still see the dollar stabilize. This move of removing the OMC demand from the market helps a lot, it naturally tilts the balance of the flows towards inflow of dollars in the market rather than outflows, that helps, that should shed some of the demand from people looking to buy. A little more supply and the correction could genuinely help stabilize the markets and calm nerves.